News: 'India leads global offshore market'

(BL 22/03/2007) Chennai - India continues to be best global offshore destination for software offshore services while China is a close second, Sri Lanka and Pakistan are emerging as alternative destinations in Asia, according to a study done by global consultants A.T. Kearney.

The study identified the top 40 global outsourcing destinations for 2007, and India was on top of the list in the 2005 version, followed by China.

Both Sri Lanka and Pakistan offer many of the same advantages as India, with similar labour costs, widespread use of English, strong education systems and increasingly open and well-regulated business environments. However, both countries have only recently woken up to the `enormous' opportunity of the offshore services sector and therefore lack India's breadth and depth of experience. Both countries are also disadvantaged by their relatively smaller population-base and obvious concerns over internal security, says the study.

Sri Lanka and Pakistan entered the A.T. Kearney Global Services Location Index for the first time at 29th and 30th places respectively, says the study that is available in A.T. Kearney Web site.

Latin American countries - Brazil, Chile and Mexico - are collectively the biggest gainers in this year's index. Spurred on by India's success, governments in the region have begun to recognise the potential of the export services sector, particularly in the context of providing near-shore support to North America and Iberia.

China catching up

India maintains a wide, albeit slightly shrinking, lead over China, confirming what industry surveys and visiting executives repeatedly find - for all the concern about overheating, wage inflation and service levels. India still offers an `unbeatable' mix of low costs, deep technical and language skills, mature vendors and supportive government policies, the study said.

In both India and China, double-digit growth rates have fuelled wage inflation, with average compensation costs for `sample functions' rising by around 30 per cent in China and around 20 per cent in India. But these cost escalations have been matched by corresponding increases in skill supply and quality indicators.

Southeast Asian nations continue to do well with Malaysia, Thailand, the Philippines, Indonesia and Singapore occupying five of the top 12 spots and Vietnam entering the top 20. Singapore has been overtaken by larger, lower-cost countries now competing to establish themselves as service centres - in the same way that Singapore itself did 20 years ago. In the Philippines' case, growth in the sector and currency appreciation have driven up wages in US dollar terms by as much as 30 per cent, reducing relative cost advantage.

Nevertheless, the Philippines remains one of the lowest wage locations in the Index and now offers the lowest telecom costs of any country in the Index.